United Announces Non-Qual Pilot Pension Payment Suspension

February 11, 2005 (PLANSPONSOR.com) - United Airlines has notified its retired pilots that it plans to slash their pension payments by as much as 40% until the ultimate future of the air carrier's pension plans is decided in court.

United, which has been under bankruptcy protection for two years, is suspending the payments until a US Bankruptcy Court judge decides whether the company can terminate its four pension plans as of later this year or whether the nation’s pension insurer, the Pension Benefit Guaranty Corporation (PBGC), can take over the United Airlines Pilots’ Defined Benefit Pension Plan as of December 31, 2004 (See PBGC Takes Over United Pilot Pension Plan ), Bloomberg reported.

United Vice President Lynn Hughitt said in a letter to 6,000 pilot retirees that the reductions in the company’s non-qualified pension benefit payments effective March 1, 2005, would be in place until a “resolution of those legal actions.” The airline would later make up payments for the period between suspension and a court-approved plan termination, she said.

United proposed in August to terminate the plans to save $639 million annually to help it reorganize out of bankruptcy protection (See United Considers Scuttling Pension Plans ). Active pilots last month agreed not to oppose a pension termination in exchange for $550 million in convertible notes that the 6,600 active pilots could sell in the capital market to raise money to cover a portion of the pension shortfall they would encounter (See ALPA Agrees not to Fight UAL Pension Termination ).

If United terminates the plans, the PBGC estimated last year that it would assume $6.4 billion in liabilities. The insurer would make limited retirement payments to about 119,000 current and retired United workers, who collectively would lose about $1.9 billion in benefits – the difference between what they would have received from United and the PBGC’s legal payment limits.

United latest move drew a strong response from United retired pilots’ group. “We believe this unilateral action by United is illegal and that United does not have the right to suspend vested pension benefits without Court approval,” the United Retired Pilots Benefit Protection Association said in a Web site statement . In this instance, there was no advance notice, no opportunity for discussions, no court proceedings, and no court approval. This action by United clearly shows its arrogance in believing that it can abrogate everyone’s legal rights with impunity.”

The United retired pilots group said in the Web statement that it had asked to be recognized as a legal party in the bankruptcy court case to help fight United’s move.

Unions for mechanics, flight attendants, customer service agents and bag handlers are in negotiations with United on the pension issue, seeking alternatives to a termination. The unions have said they oppose termination and may strike if the carrier tries to impose contract changes through the bankruptcy court.